Brian Stoffel on how to valuate high-growth stocks

Brian Stoffel, a regular Motley Fool contributor, wrote up an excellent Twitter thread on how to value early-stage high-growth companies we tend to invest in. He used $TMDX as his example. He cautions that this is a highly inexact science, but you can still use his method to build a quick and dirty ballpark model for other companies you’re interested in.

The basics are to figure out the total serviceable/addressable market, the percent market share to capture, potential profit margin, and a reasonable potential P/E multiple down the road. Use this to ballpark the market cap in 5 years, then figure out the CAGR from today. These are metrics we tend to discuss regularly from earnings calls around here, so I figure it’s helpful to put those numbers in a model especially as we have shifted to paying closer attention to valuation on the board.

I may try to apply this model to a few other darlings of our board here to see the results.

I’m not quite sure if this is OT or not, so please be thoughtful with your replies.

https://twitter.com/brian_stoffel_/status/1726655019653500966?s=46&t=SrkO8iws5rKwZgdn3NkiQw. (note you need to be logged in to view the entire thread)

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A new member comments. Saul’s Discussions define the basis for all investment decisions should be an assessment of existing financial and market data. A rational process for projecting future value of an evolving company based on the best existing data seems to have a place here. This becomes an even more exciting possibility if longer term members can use their captured historical data to back test the relative accuracy of Stoffel’s process for newer companies that have already achieved some level of maturity.

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